One of the most important aspects of selling or buying a business is the purchase agreement. Purchase agreements should clearly define the rights and obligations of each of the parties and accurately reflect the key terms of the transaction.
Key features a business formation attorney wants to include when drafting a purchase agreement include: (1) identifying the parties; (2) identifying the purchase price and what the purchase price includes; (3) identifying the representations of each party; (4) identifying a non-compete clause; (5) identifying a closing date; and (6) identifying any post-closing responsibilities of the parties.
- Identifying the Parties: The parties should be clearly named in the purchase agreement with close attention paid to whether an individual is selling or purchasing on their own behalf or on behalf of an entity that must be named as a party versus the individual.
- Identifying the purchase price: The purchase price should be clearly identified along with a detailed description of what is included in the price. The description should make it clear if the price covers all assets, including office equipment, company vehicles, customer lists, etc.
- Identifying the representations/warranties of each party: The representations of each party identifies exactly what each one is bringing to the table and what each party will and will not do in relation to the transaction. Examples of these representations include the seller maintaining the assets in good condition pending completion of the transaction and the continuation of insurance coverage until the buyer takes possession of the business.
- Identifying a non-compete clause: The purchase agreement should include a precise statement that the seller will abstain from operating a similar business within a specified area and for a designated length of time to avoid negatively affecting the profits of the business being purchased.
- Identifying a closing date: The parties should include a date or timeframe to complete the purchase. In other words, the purchaser should have a specific date when he or she can take possession of the business. A closing date clause should also contain language specifying that the date may change and the circumstances under which such a change might occur.
- Post-closing: Lastly, a purchase agreement should include provisions that detail what, if any, actions the parties must do after the specified closing date.